Oidon Company, Ltd. (OIDN)

[Spellbound]

Make Way for the Chinese Gold Buying Frenzy

Ref - http://www.whiskeyandgunpowder.com/Archives/2007/20070718.html

“The beginning of gold trading by individual investors on the Shanghai Gold Exchange (SGE) later this month is expected to provide a welcome alternative at a time of high stock market volatility.” — China Daily July 4, 2007 (Happy birthday, America; bad news for the redcoats!)

After launching the Shanghai Gold Exchange in October 2002, the exchange’s principals announced a three-part plan to liberalize trading: 1) establish a deferred delivery service (as physical transactions are settled pretty much the same day); 2) create gold-related investment products in order to promote domestic investment demand and create liquidity; 3) integrate the exchange into international markets — which includes expanding import/export licenses and allowing foreign entities to become members.

Since then, the exchange has flourished in the spot and forward markets, with volumes surpassing the Hong Kong Gold and Silver Exchange and the Istanbul Gold Exchange in its first year (2003). Since 2003, transaction volumes on the Shanghai Gold Exchange have grown fivefold, to over 1,000 tons in 2006 (cumulative volume through the end of May 2007 was 3,910 tons) — and are on track for 1,500 tons in 2007. That is one-tenth of the annual transaction volume of the Tokyo Commodity Exchange, just 3% of Comex trading volumes, and but one-hundredth of the London Bullion Market’s annual OTC clearing volumes . However, the growth of China’s only gold bourse in just five years has been nothing short of spectacular, given that participation by the retail public has scarcely been tapped. Last month, the central bank, which founded the SGE, approved two landmark changes for the gold exchange: 1)The trading of gold and silver futures on the SGE and 2)Foreign banks operating in China could be enrolled as members of the SGE (in principle).

Local newspapers cited HSBC, Standard Chartered, UBS, Societe Generale and the Bank of Nova Scotia as front-runners for membership. Thus, the exchange has step three of its plan to liberalize trading on the SGE within sight and is in the mature phases of step two — mobilizing the launch of the kinds of products that will attract domestic investment demand. While the central bank will continue to regulate trade in physical gold, the country’s securities regulator, CSRC (China Securities Regulatory Commission), regulates futures and derivatives trading and must still approve the exchange’s trading in gold and silver futures. However, no one anticipates any roadblocks.